What is a Government Sponsored Enterprise?

As a loan officer and a consumer, it’s important to know about the secondary mortgage market and the corporations that are involved. These publicly-traded corporations are called government sponsored enterprises.

In the mortgage industry, GSEs are essential in providing affordability, financial resources, and strength to the market, especially for long-term, fixed-rate mortgages. They are regulated by the Federal Housing Finance Agency or FHFA. Despite being created by the government to facilitate homeownership, particularly for middle to low-income households, GSEs are still classified as private entities.

The Secondary Mortgage Market

GSEs like Fannie Mae and Freddie Mac are a part of the secondary mortgage market. These institutions purchase single-family conventional loans and do not lend money directly to the public. Instead, they guarantee loans distributed by third party companies. Federal Home Loan Bank System is the institution that provides capital to banks and other lending institutions so they can make loans.

The Difference between a Government Sponsored Enterprise and Agency

There is one major difference between a government sponsored enterprise and a government sponsored agency. GSEs increase the flow of credit in the financial market and were created with the purpose to reduce the cost of borrowing capital and are operated under the US government. On the other hand, GSAs were created to help regulate GSEs and set and enforce the standards for how the enterprises operate and how funds can be distributed.

The information provided on these posts have been prepared by a third party company and have been distributed for education purposes only. The positions, strategies or opinions of the authors do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax adviser for full eligibility requirements on tax deduction.